Akshay asked if his decision is right in buying car in above calculated approach

I said, You are buying a liability on another liability

Akshay – How, please explain.I – Car is a liability, we need to keep spending on car monthly for fuel and maintenance and its value decreases over time.

Akshay – Acha Ok.I – And you are buying a car (liability) with a loan (another liability), which is not a good approach.

Akshay – Ok, but my wife started working last month and she is earning 20-25k approx monthly and we thought to buy car with her salary.I – So, when your income increases, you buy things which you dont need on loan?

Akshay – No, but we want Caaaaar.I – How much will be your daily usage of car?

Akshay – We will not use it daily, may be monthly twice or thrice during weekends or holidays.I – Ohh, then you can make use of cabs like Ola or Uber.

Akshay – Yes; but it doesnt give feel of owning a car.I – Oh, I think you dont know, until loan is cleared CAR will not be yours’.

Akshay – Hmm yes, but it will be with us 🙂I – You are getting emotional.

Akshay – Please tell me if my logic is correct, shall I buy car with calculations mentioned above?I – As I said earlier, it is not a wise approach to buy car on loan. By the way, bank will not give loan to your wife as she just started earning and also nobody will give loan upto 80-90% of income going as EMI.

Akshay – I thought about it, so what I will do is, I will take loan on my name and pay emi from my account and will adjust with my wife salary.I – Ok, what if your wife stops working after couple of years?

Akshay – Why will she stop working?I – Consider for suppose

Akshay – It may become tight for me to pay EMI, I dont have much emergency fund also.I – Hmm…thats risky.

Akshay – Please tell me if my decision is fine?I – I have been telling since beginning, that this decision is not wise, but what are you expecting from me?

Akshay – I want you to tell me that my decision is right.I – Then; why are you asking me if you have pre-decided?

Akshay – I want to confirm with you.I – I can give opinion if you can listen open-mindedly. If you have pre-decided then whatever I say doesnt’ matter to you.

Above discussion happend about 8 to 9 months ago with one of my friend (name has been changed for privacy reasons) and no conversation happend after that

Today he pinged me and asked if we can meet over coffee and when we met;

Mr. Akshay looked unusual and was uncontrollable with his emotions. Upon discussing with him, following is the summary,

He bought the car on the loan, then after 4 months his wife had to stop working as it became difficult for her to manage work at office and son (2yrs old) at home as Akshay’s mother went back to their hometown who used to take care of his little son.

Akshay, in his words whatever you told became reality. After my left to hometown, We have decided and asked my wife to stop working and car EMI became a big burden now. I thought of informing you at that time itself but I did’nt know how to show my face to you, all these days that’s why I did not communicate to you.

Today I thought, Kaustubh was able to analyse and tried to advice me not to buy car at that time itself but I did’nt listen to him.

I dont know how many more mistakes i m doing which I did’nt ever thought of, so I kept my ego, shyness aside and messaged you. Now, I want your advice on all my financials and tell me what actions should I take to ease out my financial burden.

Kaustubh – My Final words – Financial Planning is all about managing RISK and ensuring we achieve our Dreams and Aspirations by not falling as trap to RISK by avoiding / mitigating it

Long real life story, please read at your convenience. Hope you all learn out of it 👆🏾👆🏾👆🏾👆🏾

Financial Freedom means having zero tie-ins to anything financial. It includes your income, debt and expenses, lifestyle. It is of little matter how people perceive the meaning differently. Rather, it is more crucial to understand how to act based on your financial situation.

Loan FreeBeing debt-free should not be confused with being financially well off. If you are only debt free, you still have to work in order to pay for your basic expenses and taxes. In order to achieve financial freedom, the first thing we have to ask ourselves is what does it take to be debt free?

Income & Expenses

Assume you purchased a car without any loans required, it does not imply you are financially debt free.

There are other factors to take account of like servicing & other maintenance costs, fuel costs, repairs etc. Moreover, this is just a car. Think of other factors also. Your expenses must be well managed to achieve this goal.

If expense is greater than income, you are far from being free from anything.

Financial Assets

Financial assets are financial tools that will generate annual cash flow for you. These assets can be pension, shares, bonds and mutual funds. You can get dividends fromshares, receive regular payments from your bonds or mutual funds.

Today, every single product is positioned as need based solution. Can you deny the need to save for child’s education, self retirement, safeguard family’s health & build wealth in long term? It is difficult to see the advantages of any investment when approached by a good salesman.

The world has evolved to a global state & so do any company or salesman. I would rather term them all as HAWKERS. They position the product so well that customers fall for sales pitch & buy it.

Game plan of HAWKERS: IF you have child, you require Child Plan. If you have family, you must have medical insurance. You also need Retirement Plan.

Result: You buy costly child Ulips & guaranteed plans, complex medical policies, inflexible pension plans. They push you to diversify across Stocks, gold, property, bonds, bank FD, PPF & other complex options. If you can’t afford a new home, bigger car, or foreign holiday, they will get you to leverage on future income.

You take a home loan, a car loan, a personal loan & you also collect few credit cards in bargain. This is sure shot recipe for financial worries. Use the magic word to safeguard your finances against such perils, make you rich & protect you from friends offering free advice, wealth managers, money quacks, banks, insurance companies, bank relationship managers, insurance agents who are trying to sell you something or other.

Magic word: No, Nahi, Nako, Na, Venda, Nahim, Illa, Illai.

‘NO’ is a very powerful word. Use it ruthlessly. Say ‘NO’ to the relative who wants to sell you an endowment insurance policy. Turn down bank executive who is pushing a pension plan. Refuse the offer of free add-on card from Credit Card Company. Don’t agree to buy child plan that costs a bomb.

I will address the various types of protection requirements in this series.

A Pure Term Insurance or Pure Vanilla Insurance is the basic step of Financial Planning. It will take care all the financial need & requirements of a family in the absence of a breadwinner or earner of the family.

Vanilla is termed as basic; which also means without any additional feature or optional riders.

Term plan is a life insurance risk mitigation policy that provides coverage for a certain period of time & will ensure the financial protection for the family. A term life insurance policy is a pure life cover. This is the cheapest form of life insurance cover.
A person can take 10 or 15 times cover of his annual income.

I always advise my clients to increase the coverage on every block of 3 to 5 years to be inline with income increase.

This can be taken by any individual who is working and having financial documents like salary slips, businessmen filing Income Tax returns for 3 years or more.

Note of prime importance:

If you have already taken a term cover, any change in your personal habits, lifestyle changes, contracting of new diseases, surgery etc has to be intimated to your insurance company in writing along with medical reports for better claim settlement process.

How a Term plan works

Dr. Ganesh, age 30, a Doctor, has 2 dependants – his parents and his wife. Ganesh’s annual income is 10 lakhs is good enough to support his family, but he is concerned. Since he is the sole breadwinner, his dependants could be under tremendous financial stress in the event of his sudden & unfortunate death. Therefore, to mitigate the risk, Ganesh is considering buying a Term Plan.

He can get a term cover of RS 1 Crore for a policy tenure of 30 years (working age) for an annual premium of around Rs 8,500 – 9,500. The cheapest available option to claim a large cover.

In fact, by paying just 1 percent of his annual income, Dr. Ganesh will be getting a life cover of Rs. 1 Crore.

So in the event of Dr. Ganesh’s sudden & unfortunate death, An Insurance company will give a cheque of 1 Crore to the nominee (dependable parents or wife or both). So this money can be used to take care of financial needs of the family as a sole earner of the family is no more.

Benefits of Term Plan

Low premium: The premium for a term plan is relatively lower than all other insurance plans because there is no investment element in the amount insured.

Protects family against the financial loss of income: A sudden death of a sole earner of the family is a huge stress on the family as the income is stopped but the daily requirements need to be met.

So take the first step in order to ensure the financial protection of your family by taking a Vanilla Term Plan.